Thought Leadership

Assisting Clients Who Are Victims of Identity Theft

The New
Hampshire Medical Society recently issued a fraud alert to its members making them
aware that a number of New Hampshire medical professionals have been the
victims of identity theft involving fraudulent tax returns filed under their
names. Despite increased investigation and enforcement by the Internal Revenue
Service, fraudulent tax returns involving identity theft are becoming more
prevalent and affecting a broad range of accountants’ clients. Typically, the fraudster obtains someone’s
Social Security Number and electronically files a return early in the
year. The ease of electronic filing
facilitates fraud by enabling the fraudster to file and receive a refund before
anyone has the opportunity to identify that the fraud occurred.

Frequently, the fraudulent return
reports a small amount of income, claims an earned income tax credit, and
requests a refund. By filing early in
tax season, the fraudster files before the taxpayer can file. Additionally, early filing ensures that the
IRS processes the fraudulent return before items such as Forms W-2 are
available online, so there is no apparent mis-match between the income reported
on the return and income reported to the IRS by the taxpayer’s employer. Because the fraudulent refund request does
not depend on actual amounts withheld from the victim’s paycheck, this crime
effects taxpayers of all income levels.

The victim
of this type of identity theft frequently can learn of the problem in two
ways. If the taxpayer, or you on their
behalf, files electronically, the IRS will reject the filing on the basis that
a return has already been filed under the taxpayer’s Social Security
Number.If that happens, the taxpayer
will be required to file the return on paper rather than electronically. A taxpayer might also learn of possible
identity theft upon receipt of a notice from the Internal Revenue Service
informing him or her that two returns were filed under his or her Social
Security Number. A taxpayer who receives
this type of notice should respond promptly to the IRS using the contact
information in the notice. With a Power
of Attorney, you can contact the IRS and obtain an account transcript, or a tax
return transcript for your client for the disputed year. The transcript will provide information on
what was filed with the IRS and, if the information matches the pattern
described above, will be an additional indication that your client is an
identity theft victim.

If you have
a client who does not receive a notice from the IRS, but believes he or she is
a victim of identity theft, they should contact the
IRS Identity Protection Specialized Unit at 800-908-4490, extension 245. Identity fraud investigations are difficult
and time consuming. The IRS estimates
that an investigation may take six months.

If
you have a client who believes he or she may be at risk for identity theft due
to a lost purse or wallet, or questionable credit card activity may contact the
IRS Identity Protection Specialized Unit and request IRS action to secure his
or her account. All potential identity theft victims must complete and
file Form 14039 with the IRS. The IRS
also suggests that an identity theft victim file a complaint with the Federal
Trade Commission by calling the FTC’s Identity Theft
Hotline: 1-877-438-4338, via the internet at www.ftc.gov/identity theft, or by mail at Identity Theft Clearinghouse, Federal Trade
Commission, 600 Pennsylvania Avenue NW, Washington, DC 20580.

In addition
to contacting the IRS, the Federal Trade Commission suggests an identity theft
victim take the following steps:

Place an initial fraud alert on your credit reports, this will reduce the risk of new accounts being opened in your name. Experian – 1-888-397-3742 (www.experian.com) Transunion – 1-800-680-7289 (www.transunion.com) Equifax – 1-800-525-6285 (www.equifax.com)

Obtain copies of your credit report, and review the report for accounts you did not open, debts you did not incur, or credit inquiries you did not authorize.

Contact the credit fraud department for any accounts that you identify as accounts you did not open or authorize.

Keep complete records of all actions taken, including the time and expense expended to deal with the identity theft.This information may be useful in litigation or criminal prosecution.

Prepare an Identify Theft Affidavit, available online at the Federal Trade Commission’s website.This document is useful in disputing new accounts opened fraudulently.

File a police report and obtain an Identity Theft Report from the police. An Identity Theft Report is another useful piece of evidence that demonstrates someone was a victim of identity theft.

Work with creditors to dispute fraudulent accounts.

Contact your homeowners or general liability insurance provider to see if you have insurance coverage for identity theft.

Finally, you should remember that the IRS does not initiate taxpayer contact via telephone or email. Therefore, if a taxpayer receives a telephone call or email purportedly from the IRS, the taxpayer should not respond to the solicitation and should notify the IRS of the contact.

Patrick Closson serves as vice chair of the Corporate Department at McLane, Graf, Raulerson & Middleton and as managing director of the firm’s Portsmouth office. Beth L. Fowler is an associate at the McLane, Graf, Raulerson & Middleton law firm handling individual and business tax issues under both federal and state law.

Click here to see New Hampshire Business Review article by Patrick Closson.

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